Rescinding Job Offers: Legal and Reputational Risks for Employers

Revoking Job Offers Due to Inflation and Recession: Legal and Reputational Risks for Employers

When considering revoking job offers due to inflation and the possibility of a recession, businesses should be cautious to avoid negative legal and reputational consequences. High-profile employers such as Coinbase Global Inc., Meta Platforms Inc., and Twitter Inc. have recently rescinded job offers while many other companies are implementing layoff plans or reducing recruitment efforts. Although federal law permits employers to withdraw job offers for various reasons, except those based on protected factors such as gender or race, businesses should exercise caution when doing so. While employment attorneys haven't seen a significant increase in the number of job offers being rescinded for cost-cutting purposes, they caution businesses to proceed with care to avoid exposing themselves to litigation if a job applicant suffers economic or emotional harm as a result.

Sara H. Jodka, an attorney at Dickinson Wright, advised that if a job applicant is a member of a protected class that was disproportionately affected by a job offer being rescinded, they may bring discrimination claims against the employer if they believe they were targeted for reasons other than budget constraints. Employers should document the reason for rescinding the offer, especially if it's due to the job no longer being available, to protect against potential bias claims.

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Devora L. Lindeman, a partner at Greenwald Doherty LLP, stated that companies must have a legitimate, non-discriminatory business reason for rescinding a job offer, and this reason must be documented before the offer is withdrawn. According to Lindeman, this reason should arise between the time the offer was made and the time it is rescinded.

Lindeman also suggested that if a company is considering layoffs and cost-cutting measures, it may be better to implement a hiring freeze to maintain the status quo and avoid issuing job offers that may need to be rescinded later on.

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Attorneys stated that outside of discrimination claims, an applicant could make a breach of contract claim to seek damages. This is particularly relevant if the applicant made significant life changes such as selling their home or relocating based on the job offer. If there is a contract at play, the employer could be liable for significant damages. Alternatively, a rejected candidate could argue a promissory estoppel claim which allows them to receive damages due to the consequences of an unfulfilled promise. Under this claim, employees could obtain punitive damages and attorney's fees if they can prove that the employer acted with malice. However, these cases rarely proceed far since the employee typically finds a new job elsewhere, and the employer is only responsible for damages during the period the applicant was unemployed.

To avoid legal issues, Jodka suggested that initial offer letters should clearly state that the offer is conditional and should not include a formal contractual agreement outlining the terms and conditions of employment.

Caution Required When Rescinding Job Offers to Avoid Legal and Brand Damage

In addition to the risk of litigation, employers could damage their brand and morale among their existing employees, affecting future recruitment efforts. To avoid this, employers should communicate transparently and effectively with candidates when revoking an offer, without divulging all the financial details. Lindeman recommended that companies document the reason for rescinding the offer and communicate any changes to the candidate if they decide to re-hire for the role later.

Employers such as Coinbase and Twitter have voluntarily offered severance pay to candidates whose job offers were rescinded, providing financial support to those who incurred significant moving costs. According to Beattie, employers can provide monetary compensation or settlement agreements to release the individual's claims.

Human resources consultant Stefanie Camfield urged employers to be "brand-conscious" at all times, as how they handle revoking a job offer can impact the candidate's reaction and the likelihood of legal action being taken.